Updated Nonqualified Deferred Compensation Plan Audit Guide

In June the Internal Revenue Service released an updated Nonqualified Deferred Compensation Audit Technique Guide. This updated Guide replaces the initial Guide published in 2015. While it is too early to say whether the release of the updated guidance signals increased audit activity by the Service in the nonqualified plan space, plan sponsors of nonqualified deferred compensation plans may want to consider reading the updated guidance to re-familiarize themselves with the underpinnings of Section 409A of the Code. 

The updated Guide is written in a conversational style and provides a very good outline of key deferred compensation principles. While it may not provide new information for individuals that regularly practice in this space, it will almost certainly be a good initial read for those that are not familiar with Section 409A of the Code or for those that do not regularly work with deferred compensation programs.  Read More ›

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CalCurrent Podcast and Equity Compensation for Startups

On May 13, 2021, Phoenix executive compensation and employee benefits partner, Greg Gautam, joined Snell & Wilmer’s “CalCurrent” podcast.  On his episode,  Greg covered five common pitfalls private companies and startup companies should watch out for when structuring their equity compensation and incentive programs.  You can listen to Greg’s full CalCurrent episode here if you are interested in learning more about these common mistakes, and more importantly, tips on how to avoid them. Read More ›

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Certain Information Statements for ISOs and ESPPs Due by January 31, 2021

As reported in Part 3 of our 2020 End of Year Plan Sponsor “To Do” List, Section 6039 of the Internal Revenue Code (the “Code”) requires employers to provide a written information statement to each employee or former employee and file information returns with the IRS regarding: (1) the transfer of stock pursuant to the exercise of an Incentive Stock Option (“ISO”); and (2) the first transfer by the employee or former employee of stock purchased at a discount under an Employee Stock Purchase Plan (“ESPP”).  For ISO exercises and ESPP transfers occurring in 2020, the Section 6039 employee information statement requirement is satisfied by providing Form 3921 (for ISOs) and Form 3922 (for ESPPs) to employees no later than January 31, 2021.  Read More ›

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COVID-19-Related Cancellations of NQDC Elections

As a general matter, deferral elections under non-qualified deferred compensation plans (“NQDCs”) cannot be cancelled unless a NQDC plan participant incurs an “unforeseeable emergency” or “disability” as each such term is defined in Section 409A of the Internal Revenue Code. Internal Revenue Service Notice 2020-50 (the “Notice”) adds a third reason to permit the cancellation of NQDC elections, the receipt of a coronavirus-related distribution (“CRD”) from a qualified retirement plan.

The Internal Revenue Service issued the Notice on June 19th to, among other things, help plan sponsors allow plan participants to take advantage of the provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) by giving participants greater access to their retirement plan savings. Read More ›

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In Case You Missed It … Recent Posts From the SW Benefits Update

We periodically consolidate our prior blog posts and push them out as a single package to help individuals catch up on what they might have missed with respect to important health and welfare, qualified retirement plan, and executive compensation issues.  The posts highlighted here largely focus on the CARES Act and the impact the COVID-19 pandemic is having on employee benefit and executive compensation plans.  As always, please feel free to reach out to any member of our employee benefits and executive compensation group with questions.  Please enjoy (and have a safe) Memorial Day weekend!

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IRS Continues to Extend Key Filing Deadlines in Response to COVID-19

On April 9. 2020, the Internal Revenue Service (the “IRS”) issued Notice 2020-23, which extends a number of key filing deadlines in the wake of the COVID-19 pandemic.  The guidance provides welcome relief to individuals and plan sponsors who must perform certain “time-sensitive actions” on or after April 1, 2020 and before July 15, 2020.  For Notice 2020-23 purposes, “time-sensitive actions” are described, in part, in Revenue Procedure 2018-58, and include key filings such as Forms 5500, 990, and Section 83(b) elections.  Because the relief is provided only for filings due during the period from April 1, 2020 to July 15, 2020, certain individuals and plan sponsors will remain subject to normal filing deadlines.  Read More ›

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Updated Glass Lewis Proxy Voting Guidelines

I previously blogged about certain compensation related updates to ISS’ proxy voting guidelines for 2020.  With proxy season in full swing, I wanted to highlight some important compensation related changes to the Glass Lewis 2020 voting guidelines, a full copy of which can be found here.

  • Contractual Payments and Arrangements. In their 2020 guidelines, Glass Lewis clarifies its policy for say-on-pay proposals with respect to the analysis of both ongoing and new contractual payments and executive entitlements. In particular, Glass Lewis has provided a list of certain executive employment terms that may result in a negative say-on-pay vote recommendation, which includes, but is not limited to: (i) excessively broad change in control triggers; (ii) inappropriate severance entitlements; (iii) inadequately explained or excessive sign-on arrangements; (iv) guaranteed bonuses (especially multi-year guarantees); and (v) the failure to address any concerning practices in amended employment agreements. 
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ISS Expands List of Egregious Equity Plan Factors

As reported in prior blogs, Institutional Shareholder Services Inc. (“ISS”), a leading proxy advisory firm, uses a proprietary “Equity Plan Scorecard” approach to evaluate public company equity compensation plans and will recommend a “for” or “against” vote depending on a combination of plan features, plan cost, company grant practices, etc.  Last week ISS issued its Proxy Voting Guideline Updates for 2020, which are generally effective for meetings on or after February 1, 2020 (“2020 Update”).  The 2020 Update, among other things, makes changes to the current Equity Plan Scorecard.

Regardless of how a plan scores under the current Equity Plan Scorecard, ISS will generally recommend a vote against a plan proposal if any of the following egregious factors apply: (i) accelerated vesting pursuant to a liberal change in control definition; (ii) provisions that permit the repricing and/or cash out of underwater options or stock appreciation rights without shareholder approval, (iii) provisions that make a plan a vehicle for problematic pay practices or create a pay for performance disconnect, (iv) the plan is excessively dilutive to shareholder holdings, or (v) the plan contains other features that have a significant negative impact on shareholder interests.  Read More ›

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DOL Finalizes Regulations Requiring Electronic Filing of Top Hat Statements

On June 17th the Department of Labor finalized a set of proposed regulations requiring that all “top hat” plan statements be filed with the Department electronically though this website.  As brief background, a “top hat” statement is a one-time filing made with the Department of Labor to protect against a non-qualified plan established for a select group of management or highly compensated employees becoming subject to some of the more onerous requirements of ERISA.  Accordingly, to maintain this protection, effective August 16, 2019, “top hat” filings must be made electronically.

The Department introduced the proposed regulations on the electronic filings in September 2014 and has indicated that since the release of the proposed regulations 54% of the “top hat” filings received have been made electronically.  Read More ›

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Director Compensation Update

I’ve written a number of articles and blogs about some sticky issues that can surface in the context of setting pay for public company non-employee directors (here, here, here, and here).

On March 6th the parties to the In re Investors Bancorp, Inc. Stockholder Litigation, filed a settlement agreement with the Delaware Chancery Court.  By way of background, the Investors Bancorp decision limited the shareholder ratification defense for non-employee director equity awards that were granted on a discretionary basis. The equity plan at issue in In re Investors Bancorp, which had been approved by the company’s shareholders, provided that the maximum number of shares that could be delivered to all non-employee directors, in the aggregate, would be capped at 30% of all option or restricted stock unit or restricted stock awards available for grant under the plan.  Read More ›

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